Diesel is the talk of the town, and for good reason: Prices of diesel fuel are at record highs in the United States, recently reaching an average of $6.53 per gallon.
A year ago, they were averaging $3.69 per gallon, meaning they have skyrocketed roughly 77%.
While standard, regular unleaded gasoline prices are also sky-high (averaging around $4.50 per gallon), diesel prices have come to dominate the latest news cycle, mostly because they are one of the most important cost inputs in the broader economy.
That is, diesel powers many heavy-duty trucks, tractors, ships, and even locomotives, among other things, effectively giving life to some of the largest industries in the world. As such, with diesel prices up, that means overall costs go up, which cascades down into goods and services.
In other words: If the cost of fueling up a tractor on a farm increases 77% in a year, the costs of the goods that farm produces are going to increase as well. For industries or businesses that often straddle a very thin line between profit and loss, a significant price hike could be a death knell.
And farmers are feeling it. “High diesel prices ARE KILLING FARMERS INCOME,” Senator Chuck Grassley of Iowa recently posted on X.
Ultimately, it’s likely that pretty much everything is going to become more expensive as a result of the diesel price spike.
Why diesel prices are so high
The price of diesel is largely determined by the price of crude oil, costs related to distribution and retail sales, and refinery margin.
While it may be easy to conflate the two, diesel prices are related to, but not directly the same as, crude oil prices.
Oil prices have increased this year mostly due to bottlenecks in the Strait of Hormuz related to the war in Iran. Diesel is a petroleum byproduct—on average, a 42-gallon barrel of crude oil yields 11 to 12 gallons of diesel, according to the U.S. Energy Information Administration (EIA).
So the war in Iran and supply-chain issues are part of the problem.
Another element in the mix is a reduction in refining capacity, which is the result of lower refining activity in parts of the Middle East, as well as in Russia.
Diesel exports from the Middle East to Europe, for instance, are at a six-year low. Additionally, military operations and ongoing conflicts in Iran and Russia (against Ukraine) have led to damaged refineries and infrastructure in those areas.
In fact, President Volodymyr Zelenskyy of Ukraine recently said his country has destroyed 45% of Russia’s refinery capacity.
Add in the fact that diesel inventories and stockpiles are low—having fallen significantly since the start of the war in Iran. So, there’s less available diesel on hand, further increasing demand for more production and refinement, which, as noted, is being stymied.
Will diesel prices keep rising?
In the near term, it’s likely that prices for many goods and services (if not most) will rise or remain elevated due to high diesel costs. And it’s unlikely that diesel prices will come down quickly or soon.
Ideas to help lower costs are being floated by the White House and members of Congress, and they include a ban on diesel exports—which would effectively mean that diesel fuel refined or produced in the United States stays in the United States.
That idea has been catching traction. Congressman Tim Burchett of Tennessee, a Republican, has even introduced legislation that would ban diesel exports through early next year. President Trump is also reportedly considering restrictions.
A ban, however, likely won’t solve the problem because the root cause of the price spike is higher crude prices and lower refining capacity, and the U.S. already has low diesel inventories. Accordingly, aside from conflicts in Russia and Iran easing, it’s not clear that there is an easy solution.
As it stands, consumers should likely brace for higher costs across the board, from the gas station (diesel-powered trucks tend to deliver unleaded gasoline to retail gas stations) to the grocery store.
